Chart Types & Candlestick Analysis

Forex charts translate continuous flows of bid/ask quotations into a visual map of price over time. The vertical axis records price, the horizontal axis records time. By compressing ticks into candles, charts expose rhythm, momentum, balance, and transition. Your edge does not come from predicting the future; it comes from repeatedly recognizing high‑quality contexts and managing risk with discipline.

Why use charts

• Context: Detect trend, range, and key reference points (swing highs/lows).
• Timing: Identify expansion vs. correction to avoid poor trade timing.
• Risk: Anchor stops at structural invalidation instead of arbitrary pips.
• Clarity: See liquidity clusters at equal highs/lows and session extremes.

From ticks to candles

Liquidity providers stream quotes; brokers aggregate and render candles at your chosen timeframe. Minor feed differences are normal. Focus on structure and consistency rather than a single‑pip discrepancy between brokers.

Forex is an OTC market with no single centralized tape. Your candles are a function of your broker’s aggregated feed from one or more Liquidity Providers (LPs). This has practical implications for spreads, wicks, and the exact shape of candles—especially on lower timeframes.

How feeds are built

• Liquidity Providers (LPs): Banks and prime brokers stream bid/ask prices with depth. Each LP has its own quoting behavior and latency.
• Aggregation: Brokers combine multiple LP quotes to form a best bid/ask. Algorithms may prioritize tighter spreads or more stable quotes.
• Execution model: STP/ECN routes orders to LPs; market maker models internalize flow. Both can be legitimate with transparent policies.

Effects on your candles

• Spread: Wider spreads at rollover or news can create small differences in wick extremes and even candle closes.
• Latency: Fast markets can cause micro‑variations in tick order, affecting intrabar structure on M1–M5.
• Weekend gaps: Open prices may differ across brokers; focus on structure, not single‑pip precision.

Practical guidance

• Use a reputable broker with consistent execution and published LP relationships.
• Backtest and journal on the same feed you will trade to avoid signal drift.
• During news/rollover, expect unusual spreads; avoid entries that rely on tight stops.

Japanese candlesticks originated with rice traders who observed recurring behaviors in crowds and prices. The method emphasizes the narrative within the body and wicks—initiative, response, rejection, and balance—over rigid formulas.

Principles

• Story over signal: A candle conveys motive (buyers or sellers in control), effort (range), and result (close).
• Location matters: The same candle at HTF demand vs. in the middle of a range tells different stories.
• Sequences: Two or three candles in sequence are more informative than a single bar in isolation.

Interpreting symbolism

• Long body: Commitment and momentum; initiative participants dominated.
• Long upper shadow: Rejection of higher prices; potential supply, profit‑taking, or liquidity grab.
• Long lower shadow: Rejection of lower prices; potential demand or stop‑run before reversal.

Practical application

• Combine candles with HTF levels, market structure (BOS/CHOCH), and sessions for robust reads.
• Require confirmation on LTF (e.g., micro‑BOS) before execution to avoid emotional entries.
• Journal examples with screenshots and notes on context, not just the candle shape.

Different chart types present the same market information with varying levels of detail. Selecting the right chart for the task sharpens your ability to see context, momentum, and risk clearly.

Line charts

• Display: Plots only closing prices and connects them with a line.
• Strengths: Reduces noise, highlights trend direction and structure at a glance.
• Weaknesses: Hides intrabar highs/lows and wicks; limited for precise entries.
• Best use: Scanning HTF trend, drawing clean trendlines, and avoiding overfitting on noisy pairs.

Bar charts

• Display: Each bar shows open (left notch), close (right notch), high, and low.
• Strengths: Full OHLC detail; easier to read than candles for some pros; great for footprint of volatility.
• Weaknesses: Less intuitive visually than candlesticks for many beginners.
• Best use: When you want candle detail without color bias; useful for backtesting execution rules.

Candlestick charts

• Display: Body represents open–close; wicks represent high–low. Color encodes direction.
• Strengths: Most intuitive; excellent for reading momentum, rejection, and micro‑structure.
• Weaknesses: Can tempt overinterpretation of single candles out of context.
• Best use: Execution and management on LTF; pattern recognition; storytelling of order flow.

When to use which

• HTF bias & levels: Line chart.
• Volatility footprint & OHLC detail: Bar chart.
• Execution and management: Candlestick chart.

Mini‑examples

• Weekly line chart reveals a clean higher‑high structure otherwise obscured by noise.
• Daily bar chart shows wide ranges with small closes, hinting at indecision despite big wicks.
• M15 candlesticks inside a HTF zone print a micro‑BOS, providing the entry trigger.

Each candlestick condenses a timeframe’s trading into four key prices: Open, High, Low, and Close (OHLC). The body and wicks provide a compact story about initiative, response, and balance.

OHLC explained

• Open: The first traded price of the period; anchor for body direction.
• High: The maximum price traded; shows the furthest buyers pushed.
• Low: The minimum price traded; shows the furthest sellers pushed.
• Close: The final traded price; where the period’s auction ended—most weighted by many traders.

Body and wick interpretation

• Large body: Initiative control and momentum.
• Small body: Indecision or balance; often inside rotations.
• Long upper wick: Rejection from higher prices; potential supply/liquidity sweep.
• Long lower wick: Rejection from lower prices; potential demand/liquidity sweep.

Practical reading examples

• After a strong bullish run, a small‑bodied candle with a long upper wick at HTF resistance hints at exhaustion or redistribution.
• In a pullback to HTF demand, a long lower‑wick candle closing strong signals responsive buying and potential continuation.
• Consecutive wide‑body closes through a prior swing imply a valid BOS and trend expansion.

Bullish and bearish candles encode the battle between initiative buying and selling within a timeframe. Color communicates direction, but the context—trend, level, session, and liquidity—determines meaning.

What the colors imply

• Bullish candle: Close > Open; buyers won the period’s auction. Larger bodies = stronger initiative.
• Bearish candle: Close < Open; sellers won the period’s auction. Larger bodies = stronger initiative.

Psychology and pressure

• Acceleration: Series of wide‑body bullish candles signals urgency to pay up—often trend continuation.
• Exhaustion: Large upper wicks on bullish candles at resistance show profit taking or supply absorption.
• Absorption: Small bodies with long wicks indicate two‑way trade and balance; look for the next push.

Read with location

• At HTF demand, a strong bullish close after a sweep suggests responsive buying and potential reversal.
• At HTF supply, repeated bearish closes after an upside sweep suggest distribution and possible markdown.

Quick examples

• M5 prints three consecutive bullish wide bodies from an H1 demand zone → likely continuation to next buy‑side liquidity.
• D1 prints a bearish engulfing at weekly resistance after equal highs are swept → risk of HTF distribution.

Timeframes compress the same stream of trades into different lenses. Higher timeframes (HTF) filter noise and define bias; lower timeframes (LTF) expose detail for execution and management. Consistency requires fixed roles for each timeframe in your plan.

Common roles

• HTF (D1/H4): Bias, major swings, key S/R, external liquidity, and primary impulse range.
• Mid (H1/M30): Zone refinement, mapping pullbacks (discount/premium), session plans.
• LTF (M15/M5): Triggers (micro‑BOS/CHOCH), stop placement, partials and management.

Time compression effects

• Lower TF amplifies noise and false breaks; require stronger confirmation.
• Higher TF smooths volatility; signals arrive slower but carry greater weight.
• Session timing influences all TFs—expect more reliable impulses during London/NY.

Example workflow

1. On H4, define the active impulse and mark discount/premium zones.
2. On H1, refine the zone and identify the confluence (FVG/OB/SR).
3. On M15, wait for trigger (micro‑BOS) before entry; manage using swing invalidation.

Top‑down analysis aligns a higher‑timeframe narrative with a lower‑timeframe execution. The HTF defines where to do business; the LTF defines when and how.

Three‑layer model

1. HTF (D1/H4): Determine trend, external liquidity, and the active impulse range (premium/discount).
2. Setup TF (H1/M30): Refine zones (OB/FVG/SR), anticipate the corrective leg into value, define invalidation.
3. Entry TF (M15/M5): Wait for a trigger (micro‑BOS/CHOCH) inside the refined zone; execute with stop at structural invalidation.

Confluence checklist

• HTF bias aligns with trade direction.
• Return to value (discount for longs, premium for shorts).
• Zone confluence (FVG/OB/SR) on setup TF.
• Clear LTF trigger and invalidation.